Mortgage rates were on the rise last week, boosted upward by higher rates on new U.S. Treasuries and some positive news on the U.S. economy.
Another key driver in the trend toward higher rates is the calendar — mortgage rates have risen in the springtime in each of the past four years. Also, as the summer travel season beckons, the price of gasoline is going up. Historically, rising gasoline prices are followed by higher mortgage rates.
On the economic front, good news comes from the U.S. consumer sector, where the most recent retail sales numbers rose, while the weekly unemployment claims were in decline. Many economists expect the next monthly employment data to show a net positive for the first time in two years. That would indicate a healthier economy, and pull more investors out of the relative safety of the bond market. Once that happens, lenders will have to hike interest rates to attract new investors, thus pushing up mortgage rates in the process.
But the most prominent reason that rates are heading north is the Federal Reserve’s upcoming deadline to leave the mortgage-backed securities market. On March 31, the Federal Reserve will officially stop buying mortgage bonds — and that will leave a huge gap in the bond market. The agency has purchased $1.3 trillion in mortgage securities in the past 18 months.If fewer bond buyers step up to the plate in the government’s absence, that drop in demand will also lead to higher interest rates as lenders will once again have to hike rates to pull more investors into the bond market.
One factor that could tamp mortgage rates down again is the federal government’s announcement last week that it will back $200 billion in losses from federal mortgage lending giants Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE). That move sends a signal to the bond market that Uncle Sam isn’t entirely removed from protecting the housing market.